October has a “scary month” reputation for stocks, but data going back to 1950 shows that it’s been a modestly positive month on average—one that has often marked the start of a stronger year-end rally. True to history, U.S. stocks continued their winning streak in October, with all three major indices advancing for the month and reaching new highs. October marked the sixth consecutive monthly gain for the S&P 500 and Dow, and the seventh for the Nasdaq—its longest stretch since 2018.
The Federal Reserve’s widely anticipated 0.25 percentage point rate cut near the end of the month was applauded by Wall Street, but hopes for another rate cut this year were dashed when Chair Powell emphasized that another reduction in December was “not a foregone conclusion,” adding “far from it.”
On the earnings front, roughly 83% of S&P 500 companies reporting by month-end beat analyst estimates—well above the long-term average—adding further fuel to the rally. The advance in October was driven primarily by strong corporate earnings among large technology and AI-related companies. Nvidia became the first company in history to reach a $5 trillion market valuation on record demand for its AI chips. This flow of positive news helped sustain investor optimism even amid a limited flow of economic data due to the partial government shutdown. The inflation report for September, though delayed in its release, was cooler than expected, which gave the Fed a green light for further rate cuts.
October has long been known for its volatility, so some sharp daily swings during the month weren’t entirely unexpected. Renewed trade tensions and the threat of higher U.S. tariffs on China triggered a sell-off, with the Dow Jones dropping nearly 900 points in a single session and the S&P 500 and Nasdaq falling 2.7% to 3.6% that same day. Concerns about regional bank stability mid-month added to market anxiety after the bankruptcies of two auto-related firms raised questions about the health of the private-credit sector. In response, investors shifted toward safe-haven assets, driving spot gold above $4,000 an ounce for the first time ever—a historic milestone that underscored the market’s flight to safety.
U.S. bonds reflected a more nuanced story in October. Treasury yields fell sharply mid-month, dipping below 4% on the 10-year note—as investors anticipated continued policy support. Bond prices move in the opposite direction to yields, so the broad bond market rallied as yields fell. However, yields rebounded to around 4.1% by October 31 after the Fed’s cautious tone tempered expectations for additional cuts. Investment-grade bonds, represented by the Bloomberg U.S. Aggregate Bond Index, finished modestly higher for the month, while lower-quality high-yield bonds lagged as risk appetite cooled toward month-end.
Trading activity within the active strategies that employ the FSA Safety Net® remained light in October. The investment team selectively added to small-cap equity positions where appropriate, as that segment led the broader market for much of the month. However, investor sentiment shifted in the final week of October, and market leadership once again narrowed toward the mega-cap technology names – a recurring theme that has persisted since the market’s rebound from the April “tariff tantrum.”
Looking ahead, markets will continue to monitor whether the Fed follows through with another rate cut in December and how corporate earnings trends evolve into year-end. With valuations near all-time highs and the policy outlook still uncertain, we remain vigilant in our active and prudent approach to portfolio management.
As always, please contact your advisor if there have been any changes in your circumstances that could affect how we manage your portfolio.
Mary Ann Drucker
Associate Portfolio Manager
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